Nokia Profit View Lowered at Oppenheimer

Oppenheimer lowered its profit forecast on phone giant Nokia Corp (NYSE: NOK) as the company is seeing greater than market seasonal weakness in demand in the first quarter of 2011.

The brokerage lowered its 2011 earnings forecast to 62 cents a share from 82 cents a share and revenue projections were trimmed to $57.33 billion from $58.81 billion. Wall Street analysts expect earnings of 73 cents a share on revenue of $59.75 billion, according to Thomson Reuters.

Oppenheimer also cut its first quarter earnings target by 3 cents to 11 cents a share and revenue forecast by $34 million to $13.21 billion. Analysts expect earnings of 14 cents a share on revenue of $14.01 billion.

Based on channel checks, the brokerage believes Nokia is seeing softness in demand in the first quarter of 2011 relative to normal seasonal industry trends. As a result, Oppenheimer slightly lowered its shipment estimates in the quarter to 14.3 percent quarter over quarter decline (106 million units) from prior expectation of 12.7 percent previously (108 million units).

We believe the weakness largely reflects the company's poor portfolio rather than a true pullback in carrier commitment to the company, analyst Ittai Kidron wrote in a note to clients.

Kidron said though has picked up some anecdotes suggesting some carriers have reduced their exposure to Nokia post its OS announcement, he believes the phenomenon is not widespread at this point. That said, with Nokia's efforts shifting to Windows and rising competition, the analyst expects the rest of the year to remain challenging.

The analyst now expects Nokia's volumes to remain flattish through the year and its operating margins to decline.

Our assumptions are nothing but an educated guess at this point. Carrier commitments could weaken, and even if they don't, as consumers become more aware of Nokia's OS switch, they could pause purchases or switch vendors, Kidron said.

Kidron believes the shares are likely to remain volatile until the success of its Windows OS strategy (or lack thereof) becomes evident.

Commenting on the impact of Japan earthquake on Nokia, the analyst said Nokia's Japanese sales exposure is negligible as a large portion of the supply is in China. But, the earthquake could disrupt its supply chain with 10-15 percent of cost of goods sold inked to Japanese vendors.

Nokia is in the midst of a complicated OS transition only at the end of which will its long-term viability as key market mover in the smartphone market be determined. Given the potential for material near-term volatility, we remain on the sidelines, Kidron wrote.

Kidron has a perform rating on Nokia stock.

ADRs of Finland-based Nokia closed Monday's regular trading session at $8.30 on the NYSE. In the pre-market hours, the stock fell 55 cents, or 6.63 percent, to $7.75.